Profit-taking may lead to reversal of recent rally

After a strong run-up since end-May when the government started easing lockdown protocols, the local stock barometer is seen prone to profit-taking pressures this week.

Last week, the main-share Philippine Stock Exchange index added 11.11 points or 0.17 percent to close on Thursday at 6,476.24. The market was closed on June 12 in observance of the Philippine Independence Day.

“The index is due for a retracement as it may have already exhausted its rally. As you know, the index has jumped 17 percent in the last two weeks and by 40 percent since mid-March,” Ron Acoba, chief investment strategist at Trading Edge Consultancy, said.

Based on the relative strength index, the market is likewise overbought, Acoba said.

“Additionally, the one-day 6.9-percent decline in the Dow last Thursday has yet to be reflected in the local scene. Fundamentally, the 12-month consensus fundamental target has also been downgraded from 7,023 to 6,764,” Acoba said.

At its recent level, he said the index offered limited upside toward its supposed target for the next 12 months.

BDO Unibank chief strategist Jonathan Ravelas said at the market’s closing rate last week, it still had some gas to try the 6,500 to 6,800 levels in the near term.

“However, a break below 6,230 levels will signal the retest of the 6,000 levels,” he said.

“As lockdown measures are eased and as the economy reopens, we continue to be long term bullish on the Philippines as we think we have seen the worst already for this market,” Maybank ATR Kim Eng Securities president Alex Dauz said in a webinar last week.

“Tactically, we believe it’s best to keep exposures largely in defensive names, particularly in consumer staples such as Puregold, Century Pacific and URC. We would also keep an eye on emerging value quality bank plays like BDO and BPI and franchise property names like Ayala Land and SM Prime,” Dauz said. INQ